COMPOUNDING UNDER FEMABY CA.SUDHA G. BHUSHAN21 July 2012INSTITUTE OF COMPANY SECRETARIES OF INDIA
Scheme of Presentation Brief overview FEMA Enforcement under FEMA Adjudication under FEMA Appeal under FEMA Compounding under FEMA By CA. Sudha G. Bhushan Meaning Authorities Procedure Application Practical aspects
Enforcement under FEMA Officers of Enforcement Directors of enforcement Special Directorate of Enforcement By CA. Sudha G. Bhushan Additional Director of Enforcement Deputy Directors of Enforcement Deputy Legal Adviser Assistant Director of Enforcement Assistant Legal Adviser
Adjudicating authority• Following has been appointed as the Adjudicating Authority under FEMA [under section 16 of the Act vide S.O 535(E), dated 1-6-2000 to hold an enquiry under Section 13 of the Act]. • Directors of Enforcement By CA. Sudha G. Bhushan • Special Directorate of Enforcement • Additional Director of Enforcement • Deputy Directors of Enforcement
• Makes aOfficers Complaint By CA. Sudha G. Bhushan Adjudicating • Holds Authority Enquiry • alleged to have committed On Persons contravention u/s 13
Contd… Director of Enforcement have the jurisdiction over the cases involving an amount exceeding Rs. one crore Special Director of Enforcement I, II and III have the jurisdiction over the cases involving amount exceeding Rs.one crore By CA. Sudha G. Bhushan [jurisdiction over specified zones] Additional Director have the jurisdiction over the cases involving amount of Rs.75 lakhs but not over 1 crore. Deputy Director’s jurisdiction is on the cases in which amount involved does not exceed Rs. 75 Lakhs. Under Section 6(3)(g) and 7(1)(a) is Commissioner of Customs and Central Excise.
Special Director (Appeals)Appeal against Order passed by By CA. Sudha G. Bhushan Adjudicating Authority Appellate Tribunal
Procedure• Director Appeal • Appellate Tribunal- Three copies • - Form II- Form 1 • Three copies • Demand draft of INR By CA. Sudha G. Bhushan- Demand draft of INR5000/- payable in 5000/- payable infavour of special favor appellatedirector tribunal for foreign exchange, New Delhi
Appellate Tribunal • Adjudicating authority not being AssistantSpecial Director Director /Deputy By CA. Sudha G. Bhushan(Appeals) Director of enforcement• Adjudicating authority being Assistant Director of Enforcement or a Deputy Director of enforcement
Special Director (Appeals) By CA. Sudha G. Bhushan Appellate Tribunal High Court
Compounding• Not defined under FEMA• As per Master circular dated 01 July 2012 :- Compounding of contraventions under FEMA is a voluntary process by which an applicant can seek compounding of an admitted contravention of any provision of FEMA under Section 13(1) of the FEMA, By CA. Sudha G. Bhushan 1999.
Amount of Penalty Amount ofcontravention • Thrice the sum involved in such contraventionis Quantifiable By CA. Sudha G. BhushanAmount is not • Two Lakh Rupees quantifiable • Rs. 5000 per day for every day Continuing during which the default continues
Compounding Powers• Reserve Bank of India – All the Sections of FEMA except Section 3(a) of the Act• Directorate of Enforcement – Section 3(a) of the Act (Essentially dealing with Hawala Transactions) By CA. Sudha G. Bhushan
Nature of Contravention• Whether the contravention is technical and /or minor in nature and needs only an administrative cautionary advice• Whether the contravention is serious in nature and warrants By CA. Sudha G. Bhushan compounding of the contravention• Whether the contravention, prima facie, involves money laundering, national and security concerns involving serious infringement of the regulatory framework.
Directorate of Enforcement Sum Involved in Authorized Person Contravention Rs 5 lakhs and below Deputy Director Above Rs.5 lakhs but of Addl. Director of below Rs.10 lakhs Enforcement Directorate By CA. Sudha G. Bhushan Above Rs 10 lakhs but of Special Director below Rs. 50 lakhs Above Rs. 50 lakhs but with Special Director with Legal below Rs. 1 crore Adviser of Deputy Enforcement Directorate Rs.1 crore or more Director of Enforcement with Special Director of Enforcement Directorate
Reserve Bank of India Sum Involved in Authorized Person Contravention Rs 10 lakhs and below Assistant General Manager of RBI Above Rs.10 lakhs but By CA. Sudha G. Bhushan of below Rs.40 lakhs Deputy General Manager of RBI Above Rs 40 lakhs but of below Rs. 1 Crore General Manager of RBI Rs.1 crore or more Chief General Manager of RBI
Compounding authorityPersons authorized by the Central Government under sub-section (1) of section 15 of the Act By CA. Sudha G. Bhushan An officer of the An officer of the Reserve Enforcement Directorate Bank of India not below the not below the rank of rank of the Assistant GeneralDeputy Director or Deputy Manager Legal Adviser (DLA)
Process of compounding• A duly completed application (in duplicate) for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention under FEMA, 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention. The format “Form” of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000 (Annexed). By CA. Sudha G. Bhushan• The application for compounding has to be submitted together with relevant facts and supporting documents and a copy of the memorandum, wherever applicable.• Prescribed fee of Rs.5000/- is payable by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the centre where the application shall be processed/was processed and the compounding order was issued.• The application may be submitted with to: The Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, 3rd floor, Amar Building, Sir P.M. Road, Fort, Mumbai- 400001 or as advised in the memorandum issued by the office of the Reserve Bank.
• The applicant must indicate the following information about the authorized person of the entity who would be handling the complete process of the compounding : • Name and Designation of the authorised person for the contravener By CA. Sudha G. Bhushan • Telephone/Fax/Email of the authorized person. • Details of the contravener e.g. date of incorporation, ownership pattern, activity, transaction etc. may be provided.( In column-6 of the Form (Brief facts of the case).
• The contravener/applicant shall specify the details of the contraventions sought to be compounded in column-5 [according to sub-section (1) of Section 13] explicitly and expressly i.e. the provision of the FEMA, or Rule, Regulation, Direction or order issued in exercise of the powers under the FEMA, or condition subject to which an authorization was issued by the Reserve Bank.• The contravener/applicant shall also specify / describe in the application the details/facts (e.g. date, amount (in Indian Rupees), parties involved etc.) of the transaction for which the By CA. Sudha G. Bhushan contravention has occurred.• Incomplete applications shall be liable to rejection by the Reserve Bank and appropriate action for the contravention of the FEMA shall be taken accordingly.• The gravity and nature of the contravention would be assessed by the compounding authority on the basis of information/document submitted together with the application.• Non-submission of relevant information/document during the processing of the compounding application would be considered as willful and intentional suppression of the material fact and the compounding application would be liable for rejection and appropriate action for contravention under the FEMA.
• Communications and orders issued under the compounding process shall be served on the authorised person in any of the following manners, which are to say by fax/Courier/Registered Post by sending it to the address/information given in the compounding application.• The sum for which the contravention is compounded as specified in the order of compounding is payable by way of a demand draft in favour of the “Reserve Bank of India” within fifteen days from the date of the order of compounding of such contravention. The demand draft has to be deposited in the manner as directed in the compounding order. By CA. Sudha G. Bhushan• On realization of the sum for which contravention is compounded a certificate is issued by the Reserve Bank subject to the specified conditions, if any, in the order.• Contraventions relating to any transaction where proper approvals or permission from the Government or statutory authority concerned, as the case may be, have not been obtained, such contraventions would not be compounded unless the required approvals are obtained from the authorities concerned.• On receipt of the application for compounding, the proceedings would be concluded and order issued by the CA within 180 days from the date of the receipt of the application. The order of CA has to be speaking order and an opportunity of being heard is required to be given to the applicant. The application once made cannot be withdrawn.
Non Compliance in Foreign Direct Investment in India By CA. Sudha G. BhushanNon Compliance in Overseas InvestmentNon Compliance in External Commercial BorrowingsNon compliance in Export /import obligationsOthers